Over the past few years, artificial intelligence has exploded in popularity, power and potential. How this continuing trend affects the UK economy will depend on how both policy-makers and domestic firms respond to the development of new digital technologies.
As the use of artificial intelligence (AI) continues to spread across economies around the world, the UK stands at a critical juncture. While the United States dominates the development of AI in terms of scale, the UK’s strengths in chip design, cyber security and materials science (among other things) offer major opportunities to influence the next generation of AI innovation. For example, the UK could play a major role in the continued development of edge systems (the use of AI in local/decentralised devices like cameras and sensors), improvements to efficiency, as well as more sophisticated cyber security.
Discussions regarding the evolution of AI are increasingly focussing on the interplay between ‘edge’ and ‘cloud’ systems across different use cases, from critical national infrastructure to humanoid robots. There is also an emphasis on understanding how the decentralisation of AI will affect – and even create – markets. Applying AI at the edge could have wide-reaching implications for the economy, society and the environment. It could deliver significant cost savings for global manufacturing firms, by predicting problems on manufacturing lines, or managing legacy equipment more efficiently. It could improve patient outcomes by predicting health complications based on data from medical monitoring equipment, or it could significantly reduce the amount of energy required to run AI models.
What is the current contribution of AI to the UK economy?
The UK’s Department for Science Innovation and Technology (DSIT) recently published its latest AI sector study to understand the profile of AI activity in the UK and its contribution to the economy. The study has taken place each year since 2022 and is prepared by a research team led by Prospective Economics.
In the three years since we started tracking the evolution of AI activity across the UK economy, AI-related business revenues have more than doubled, from £10.6 billion in 2022 to £23.9 billion in 2024. Estimates of AI-related employment are also on a steep upward trajectory, increasing by more than 70% from just over 50,000 people in 2022 to more than 86,000 people in 2024 (see Figure 1). UK exports of software licensing and computer services – categories likely to include substantial AI-related activity – have more than doubled since 2018, and grew by 33% between 2022 and 2023. For reference, over the same period other service exports grew by ‘just’ 13%.
Figure 1. Growth in UK AI Activity, 2022-2024
Source: Department for Science Innovation & Technology, Perspective Economics
The three years of sectoral analysis show that there are high concentrations of AI companies in London, the South East and the East of England. As of 2024, these regions account for approximately 75% of registered office locations (see Figure 2). Even so, the number of AI firms has been increasing year-on-year across all UK regions, at annual growth rates of between 20% and 50%. Compared with 2022, there are now at least double the number of AI companies in the West Midlands, North West, East Midlands, Wales and Yorkshire and Humber.
Figure 2. AI companies' registered office location by region
Source: Department for Science Innovation & Technology, Perspective Economics
UK AI companies have a global footprint. According to the 2024 data, 46% of all international office locations operated by UK headquartered companies are in the United States. India, Germany, Australia, and Canada also represent key trading locations for UK headquartered AI companies, accounting for between 3-8% of all UK headquartered international trading locations.
What has been the UK’s role in ‘frontier’ AI?
Frontier AI refers to the most advanced artificial intelligence systems – large-scale foundation models with capabilities that approach or exceed human performance across a wide range of cognitive tasks. These systems are especially important because they serve as the technological foundation for countless downstream applications, and raise critical questions about safety, governance and societal impact that require sophisticated technical and institutional responses.
While the level of ‘pure-play’ AI activity in the UK might be modest in comparison to the United States, the UK has played a significant role in AI model development over the years, and AI still presents major economic opportunities for UK businesses across economic sectors.
Data collated by the EPOCH AI Institute shows that the UK has been involved in the development of over 100 AI models (Figure 3), stretching as far back as 1968 when researchers at the University of Edinburgh developed reinforcement learning models for playing simple games. DeepMind’s work continues to contribute to the development of Google’s most powerful frontier AI models, maintaining the UK’s visibility of frontier AI development, and offering an opportunity to leverage leading expertise and networks that could give rise to the next generation of AI technologies.
Figure 3. UK involvement in frontier model development, 2006-2024
Source: EPOCH Institute
Note: The models with UK-based development are highlighted in blue. A petaflop is a measure of computer performance equal to one quadrillion (10¹⁵) floating-point operations per second.
These strong development credentials contribute to the UK’s appeal as a destination for AI research, development and innovation. Indeed, there were more than 50 AI-related inward investment projects into the UK in 2024, representing over £15 billion in capital investment and expected to create more than 6,500 jobs (Figure 4). In fact, a fifth of all AI-related inward investment projects since 2019 occurred in 2024 alone, suggesting growing international confidence in the UK as an AI investment destination.
Figure 4. UK AI Foreign Direct Investment Projects, 2024
Source: FDI Markets
Some of the world’s most influential AI companies have recently established a presence in the UK, giving the country more of a stake in leading edge AI development. For example, having registered a UK business in January 2023, frontier model development firm Anthropic has since established a ‘memorandum of understanding’ with the UK Government to explore the potential of using advanced AI tools to improve government services, and is one of the collaborators in the University of Glasgow’s recently established Centre for Doctoral Training in algebra, geometry and quantum fields.
Similarly, OpenAI (the developer of ChatGPT) is currently recruiting in the UK for a range of roles, from senior executive level positions such as Head of EMEA Global Affairs and Head of International Recruiting, to technical roles in security, applied AI infrastructure and applied AI engineering. Since making its multi-billion-dollar investment into OpenAI, Microsoft has engaged in more than 30 research and innovation projects spanning a range of topics, from responsible AI development to photonics, healthcare and probabilistic AI.
What does the future hold?
Innovative UK firms have the opportunity to develop AI-driven products and services that deliver genuine and lasting economic value across sectors. Enabled by access to technical talent through initiatives like Innovate UK’s BridgeAI and the AI Collaboration Centre, entrepreneurial business leaders have the chance to find creative ways to apply more accessible AI technologies to novel datasets that continue to improve economic efficiency, resilience and circularity. It is likely that this activity will play out across the UK – given that in 2024 the number of AI companies incorporated in the West Midlands, North West, East Midlands, Wales, and Yorkshire and the Humber increased by between 20% and 50%.
But as market forces continue to drive AI adoption, the attention of policy-makers is already turning to ‘what next’? It is by effectively answering this question that the UK will sustain a role at the frontier of AI development – through, for example, investment in novel materials that enhance the performance and/or reduce the cost of AI hardware, positioning the UK as a leader in AI software security, and building a more holistic approach to developing edge AI systems. In a world where European businesses are being challenged to keep pace with their counterparts in the US and China, in some part due to AI-related regulatory burdens, it is imperative that the UK maintains an active role in AI development so that the economic, societal and environmental benefits are realised.
Where can I find out more?
- Artificial Intelligence Sector Study 2024: Government analysis of the UK’s AI landscape and emerging opportunities.
- AI Opportunities Action Plan: A government roadmap outlining priority areas for UK AI adoption and innovation.
- Semiconductor Sector Study: An overview of UK semiconductor strengths, challenges and growth opportunities.
- Edge AI Hub: A national programme supporting the development and deployment of edge AI technologies.
- Edge AI Foundation: An organisation focused on accelerating decentralised and edge AI innovation.
- Henry Royce Institute – Innovation Strategy: Insights and resources on advanced materials innovation relevant to AI hardware.
- Cyber Security Sectoral Analysis 2025: Government report on the size, trends and capabilities of the UK cyber-security sector.
- AI and Software Cyber Security Market Analysis: Assessment of how AI technologies are shaping the cybersecurity market and UK capabilities.
